Regulating the Roads, and Everything Else
Aside from liberals in Washington and some at the New York Times, most economists agree that increased regulation strangles economic growth. Exactly how this works can be demonstrated by a simple experiment.
In a group of 25 individuals, assign one the task of arranging the remaining 24 persons in order of height by whatever means he chooses. Record how long it takes the “regulator” to complete the task. Then ask members of another group of 24 to spontaneously arrange themselves according to height, with no direction or control. Invariably, “spontaneous ordering” turns out to be more efficient than the “corporate ordering” directed by an officious higher-up.
The effects of “spontaneous” and “corporate” ordering were analyzed in detail by Michael Polanyi in his classic essay “The Span of Central Direction” (chapter 8 of The Logic of Liberty, Liberty Fund edition, 1998; originally 1951), from which the idea for the above experiment is also drawn. As Polanyi shows, the inefficiencies of “single factor” planning – ordering individuals by height, for example – pale in comparison to those of central planning on the part of the state. State planning that involves the coordination of tens of thousands, or millions, of different factors invariably fails. As the ludicrous rollout of ObamaCare demonstrated, not even the most powerful computers can make provisions for the varying needs and circumstances of tens of millions of individual consumers. Only the free market can do that.
Further proof of the failure of Obama’s experiment in central planning comes from the trucking industry. As with so much else, Obama’s approach to long-haul trucking has been regulatory overkill. Many in the industry have pushed back, demanding the resignation of the Federal Motor Carrier Safety Administration’s director, Anne Ferro. On July 25, that bureaucrat announced her resignation.
One has almost to feel sorry for Ms. Ferro. A government bureaucrat who sets out to regulate the sleep patterns of 2.3 million long-haul truckers faces a daunting task. Already among the most highly regulated industries in the country, long-haul trucking was subjected to new rules in July limiting drivers to no more than 11 hours of consecutive driving to be followed by 10 hours' rest, with a 30-minute break during the first 8 hours of driving, on top of a 70-hour maximum workweek to be followed by a minimum 34-hour break encompassing at least two break periods spanning the hours between 1:00 and 5:00 a.m. You might want to read that sentence again before attempting to schedule 2.3 million big rigs accordingly.
That scheduling must take into account the intangibles of weather, traffic, repairs, accidents, and other unknowns. But for regulators who write the rules, especially those who apparently have never piloted a big rig, the actual conditions of existence don’t seem to matter. It’s my way or the highway – or, in this case, my way or no highway.
As Polanyi demonstrated, all of this “corporate ordering” results in inefficiency. In its 2012 Cost of Government Day report, Americans for Tax Reform Foundation calculated the total cost of regulation in the US at 19% of GDP. This cost has skyrocketed under President Obama.
What is often overlooked is the underlying reason why regulatory costs continue to rise. It is primarily because of the unrelenting effort of progressives to control every aspect of daily life. As Jonah Goldberg demonstrated in Liberal Fascism, the progressive movement, whose origins can be traced to Bismarck and other central planners, is fundamentally antidemocratic and authoritarian in nature.
The greatest danger now facing America is the likelihood of a regulatory death spiral in which additional regulations lead to ever greater inefficiencies – and those inefficiencies and the accompanying decline in living standards produce call for even more regulation. The obvious example is Dodd-Frank, a massive imposition of new rules passed in response to the 2008 financial crisis, which itself resulted largely from government regulation of mortgage lending.
The burden of regulation is devastating the American economy. For hourly workers, real, inflation-adjusted wages have not risen since the early 1990s, and they have declined under Obama. Regulations that consume 19% of GDP are a major contributing factor to lost wage growth. Bad as this is, even worse is the assault on liberty. Every regulation entails an economic cost, but an even greater cost is the consequent loss of freedom.
There are now 2.3 million regulators working for a federal bureaucracy that has the power to impose fines or imprisonment on ordinary American citizens. Our basic liberties are under assault, as citizens can now be persecuted for their religious beliefs, including their objections to abortion. It is clear that government has stifled the rights of free speech on the part of conservative groups. And for those operating a business, there are the new ObamaCare regulations, an estimated 40,000 typed pages and counting.
In “The Span of Central Direction,” Michael Polanyi compares the destructive behavior of government planners to a “rain dance” carried out by tribal shamans. Rain dances are not usually very effective, and neither is government planning or regulation. As Polanyi puts it, “[t]he absence of practical results does not disturb those who believe in magic, and the same is true for those who believe in economic planning” (p. 169). But then, government planners and regulators never make a concerted effort to measure the “practical results” of their mischief.
Actually, the cost of Obama’s new regulations can be measured. In economic terms, they have caused a loss of two percent annually in GDP growth. Compounded over the span of a lifetime, an annual loss of 2% of GDP amounts to a loss of nearly 500%. In other words, if the regulatory state continues in its death spiral, those now starting out will end up with living standards at one fifth of what they otherwise would have enjoyed. Adjusted for purchasing power, that’s the approximate difference between the U.S. and Libya today.
In terms of liberty, the costs are far greater. The regulatory state is gradually producing a defeated, demoralized population that will find itself incapable of resisting the total domination of government. That, of course, is the plan: increased regulation followed by total domination. And that degree of control is the aim of every progressive in government.
Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2011).